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Emerging Markets Roundup: Russia

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February 06, 2012
Author:
Kim Iskyan

PROTESTERS TAKE TO THE STREETS AFTER ELECTIONS

By Kim Iskyan

Political risk assumed center stage in Russia, as tens of thousands of demonstrators peacefully took to the streets in Moscow and throughout the country to protest widespread fraud in the December 4 parliamentary elections, in which the party of power, United Russia, allegedly won 49% of the popular vote.

The December 10 and December 24 demonstrations—the country's largest since the fall of communism—were, more broadly, a demand by the emerging middle class for a political voice, following more than a decade of being cast aside by the semi-authoritarian regime of prime minister Vladimir Putin.

Key demands of the protesters—including the cancellation of election results and the firing of the country's senior elections oversight official—were ignored by authorities. President Dmitry Medvedev and Putin offered other concessions, but they were largely viewed as too little, too late to appease the evolving protest movement.

Additional protests are planned in the run-up to the March 4 presidential elections, in which Putin remains the favorite, despite the collapse of his popularity in recent months and the deterioration in the perceived legitimacy of his rule. There is simply no viable opposition candidate.

But evidence of additional fraud would likely trigger renewed, potentially destabilizing protests that could upend the Putin government altogether. Billionaire—and New Jersey Nets [basketball team] owner—Mikhail Prokhorov, who briefly headed a Kremlin-sanctioned opposition party in September before being dismissed for overstepping his role, announced his candidacy for the presidency, but he is widely viewed as a Putin patsy.

Russian shares corrected sharply in the aftermath of the parliamentary elections, as the specter of heightened political instability haunted investors. Capital flight, which reached more than $85 billion in 2011, is likely to continue to be a critical macroeconomic challenge.

In late December, Russia's central bank slightly widened the ruble-trading band, suggesting monetary authorities anticipate heightened volatility and it appears to be another small step toward inflation targeting.